The impact of Brexit on payment transfers is felt today in the UK. As the UK leaves the European Union, it will lose access to the single market and the customs arrangements that allow for the efficient movement of goods and services between member states of the Union. The decision has left both sides divided in terms of their negotiating positions. The Remain camp, which wants to remain in the EU, is particularly concerned about the effect on its economy of leaving the union without a deal to replace the current relationship. The Leave camp, led by Prime Minister May, wants to get the best possible deal for its citizens while preventing a hard border with Ireland.
The problems of leaving the EU will affect payment transfers but perhaps nowhere as significantly as in the financial sector. Financial institutions are based in different countries across the EU. While some may have direct operations in one country or even one town, many are based in the countries across the EU and therefore have to transfer funds between locations using a number of legal routes. For this reason, the potential impact of a hard border along the border was one of the concerns addressed during the lead up to the vote to leave the EU.
Some of the biggest players in the financial market were outspoken in their objections to the potential hardening of the UK’s stance on borders. The likes of Virgin Group, Northern Rock, and the Royal Bank of Scotland all voiced fears about a hard border. The three main providers of payment protection insurance – British bank Northern Rock, Prudential Financial, and the Insurance Group – said in a joint statement that a hard border would “impair” payment security for customers. The IGA and the FSA were not alone in expressing concerns. The Office for Budget and Growth, the independent Financial Services Authority, the National Farmers’ Union, the National Insurance Fund and the FSA’s Financial Services Authority all made similar comments.
The Financial Services Authority has already moved to curb some of the claims surrounding the impact of the split in the UK financial market. The FSA removed its registration of the Payment Protection Insurance provider from its list of service providers following an investigation into its pricing policies. The regulator also introduced new registration criteria which will force insurance providers to offer a payment protection to customers at more competitive rates.
There is also the risk that the UK will lose the mutual recognition it enjoys with other international businesses. The European Banking Group for example has recently expressed optimism regarding the future of the United Kingdom’s position in the European Union. If the UK leaves the EU without access to the financial center of Europe, London’s status as the financial capital of Europe will be at risk. The City of London has repeatedly rejected the idea of a hard border in the city. The Mayor of London has also pointed out that the City of London continues to enjoy a strong and positive trading relationship with the rest of the United Kingdom.
The impact of the split on payment transfers could have far reaching implications for the City of London. Without access to the single market of Europe, London may find it difficult to continue its trading position. The City will also have to compensate for its loss of European clientele by diversifying its trading relationships. Other countries may follow suit or refuse to trade with London if it is unable to remain a financial center. As a result of the current situation, British expats could experience a sharp fall in their income as they struggle to adjust to the new British tax rules.
The FSA has suggested that an independent body should be responsible for setting rules for the payment industry following the UK’s departure from the European Union. However, there are questions over whether this is a sufficient solution. Some fear that the UK’s exit from the European Union could see the introduction of a number of regulations that will make the entire payment process less suitable for small businesses. The risk that the business will not be able to keep up with the new regulations could mean that many of the UK’s small businesses will have to find alternative ways of protecting their finances.
There are also concerns that a lack of a payment protection insurance policy could see many households lose out. Households rely heavily on savings and income protection insurance as a way to keep them financially afloat during the hard times. Without access to this protection, many could find themselves at risk of being unable to maintain the payments they require. Without a payment protection cover, many families could find themselves struggling to pay the mortgage and essential bills. The impact of the situation on public finances could be large and many people will find that they either need to increase their borrowing powers or reduce the amount that they carry on their credit cards.